Kingfisher Strike Adds to Mallya’s $1.1 Billion Debt Risk

By Karthikeyan Sundaram -
Oct 4, 2012

Kingfisher Airlines Ltd. (KAIR) pilots and
engineers said they will strike until seven months of unpaid
salaries are settled, increasing the pressure on Chairman Vijay Mallya who has personally guaranteed $1.1 billion of the cash-
strapped carrier’s debts.

“If there is no money, then there won’t be any take
offs,” Vikrant Patkar, a Kingfisher captain, said after talks
with Chief Executive Officer Sanjay Aggarwal in Mumbai
yesterday. The CEO asked for 10 days to pay March salaries and
didn’t give a timeframe for settling subsequent months,
according to Patkar, who said he represented 250 pilots and 270
engineers.

The strike, which comes after Kingfisher locked out some
workers and halted flights Oct. 1, further complicates Mallya’s
almost 12 month search for a new investor for the carrier
following years of losses. He’s also asked banks for more loans
and begun talks on selling a stake in his biggest company by
sales in a bid to raise more cash.

“If the strike continues, the airline’s collapse is
imminent,” said Arun Kejriwal, director at Kejriwal Research &
Investment Services Pvt. in Mumbai. “Once that happens, he may
see his properties being seized and auctioned.”

Loan Default

Kingfisher defaulted on loan and interest payments on
several occasions in the year ended March 31, the company’s
auditor said in the airline’s annual report. The carrier had
total debts of 86 billion rupees ($1.6 billion) as of March,
according to data compiled by Bloomberg.

The airline today issued contradictory statements on when
the services will resume. Sanjay Bahadur, a vice president, told
reporters in New Delhi that flights will restart within a week
after the carrier assured employees to pay March salaries in
that time. Kingfisher later said in a text message that it
“categorically denied comments attributed” to Bahadur.

Mallya, ranked India’s 45th richest with a net worth of $1
billion by Forbes magazine in March, gave personal guarantees
totaling 59 billion rupees for loans taken by Kingfisher,
according to the annual report. It didn’t give the terms for the
guarantees. Assets worth 89 billion rupees, including brand,
planes and office furniture, have also been pledged to back the
airline’s loans.

Shares Slump

The carrier fell by about a 5 percent daily limit for the
fourth Mumbai trading day in a row, hitting 13.90 rupees. The
stock has declined 34 percent this year. Mallya’s United Spirits
rose 0.3 percent while beermaker United Breweries Ltd. (UBBL) gained
0.6 percent at close of trading.

India’s aviation regulator submitted an interim report on
Kingfisher to the aviation ministry yesterday, Press Trust of
India reported, citing officials it didn’t identify. The
Directorate General of Civil Aviation said in its report that
non-payment of salaries was a matter of “serious concern” and
the airline’s safety of operations have been “jeopardized,”
according PTI.

Frozen Accounts

The airline must settle wages before it can resume flights,
a civil aviation ministry official said Oct. 2, after a meeting
with Kingfisher management. The carrier intends to pay
outstanding wages using 600 million rupees in frozen bank
accounts, the management said at a meeting, according to Arun Mishra, the Director General of Civil Aviation.

The carrier has 10 planes, comprising seven A320s and three
Avions de Transport Regional turboprop aircraft, Mishra said
Oct. 2. It has enough staff for 60 planes, he said.

Kingfisher, named after Mallya’s flagship beer brand, has
slumped to sixth from second in terms of domestic market share
after paring services and losing passengers. It had a 3.2
percent share in August, the lowest among six carriers.

The carrier has a long-term debt to total capital ratio of
162 percent, according to data compiled by Bloomberg. That
compares with 58 percent at Jet Airways (India) Ltd. and 76
percent at SpiceJet Ltd. (SJET)